Monetary system has grown out of historical circumstances. Economic analysis convinces us that to some extent our institutions cannot be other than what they are. For example, we may not have to use paper currency, but clearly some kind of medium of exchange is essential to any economic system. Once conventions establish themselves as institutions, they dictate what purposes in fact can be served. An important objective of this course is to investigate the principal financial institutions involved in our macro economy.
A real economic relationship can be posited between any two things in the world, but the essence of economic wisdom knows which of those relationships are in fact important. Monetary institutions can only be understood if one knows the magnitudes of the economic variables associated with them. Awareness of actual statistics will be important to us in learning about monetary institutions. We will look at various data bases to gain perspective about monetary and financial institutions, thereby avoiding being trapped into thinking something is important when it is not.